Monday, July 16, 2012
Europe Suffers A Failure On The Part Of Its Leaders To Lead
July 16, 2012
European leaders have been meeting regularly to resolve the European crisis since its eruption. After every one of these “summits” they manufactured new institutional devices, hoping to calm markets down. As the tempest continues to rage, a perception is emerging that the old continent has taken on “austerity” measures to the point of endangering its own growth prospects.
By committing to fiscal discipline, are member States making the current recession even worse, dragging Europe into a spiral of poverty and despair? No. The problem is not fiscal consolidation per se—but in the means chosen to pursue fiscal consolidation: higher taxes rather than cutting spending.
According to the European Commission, member states must strive to produce primary surpluses worth on average 0.9% of GDP (Germany), 4.3% of GDP (France), 4.7% of GDP (Italy), 6.9% of GDP (Greece), and 8.1% of GDP (Spain) over the next three years to meet the budgetary consolidation requirements. These figures are unattainable in the context of a severe recession. Primary surpluses of this kind cannot materialize without robust economic growth.